Post fiscal cliff – what you need to know

As the nation rang in the new year, congress was busy passing last minute legislation aimed at diverting what many viewed as a major catastrophe – the US falling off of the preverbal fiscal cliff. While the term fiscal cliff is arguably misleading, the implications of taking the dive were very real. Congress ultimately passed the “Taxpayer Relief Act of 2012” which made the so-called Bush era taxes cuts permanent.

Here is a recap of some primary taxes laws that will affect many taxpayers:

- Permanent extension of the Bush-era income tax rates for all income up to $400,000 ($450,000 if married); for taxpayers above those thresholds, the top rate reverts to the 39.6 percent rate previously in effect. For example, a married couple, under age 65 with no children earning $450,000 will pay roughly $9,133 in additional income taxes in 2013. The higher tax liability is largely due to a higher marginal rate, the additional payroll tax liability, and the reduction of personal exemption and itemized deductions amounts. If the same couple earned $250,000, they would see an increase in their 2013 income tax liability of roughly $2,507.

- Capital gains and dividend tax rates for those exceeding the income thresholds above increase from 15 to 20 percent

- Provision for permanently adjusting the income exemption levels for the Alternative Minimum Tax for inflation

- Cap on itemized deductions and personal exemptions for those making $250,000 (or married couples making $300,000)

- Tax exemptions on estates and gifts remain at $5.12 million (indexed for inflation)

- Tax rates on estates and gifts increases to 40 percent (up from current 35 percent)

While this legislation fails to address several key issues like the nation's debt ceiling, it did kick the “sequestration can” down the road buying ourselves a few weeks to address the nation's spending.

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